Background

Under the Closing Loopholes legislation, a number of key reforms came into effect on 26 August 2024.  One such reform gives the Fair Work Commission (FWC) the power to review services contracts between principals and sub–contractors.

Independent contractors can now apply to the FWC to dispute unfair contract terms which are contained in a services contract.  The FWC can accept applications that relate to services contracts which were entered into on or after 26 August 2024.

The FWC has the power to cancel or change any unfair terms in a services contract that would relate to workplace relation matters.

Application

The criteria required to make an application to the FWC to review unfair terms in services contracts includes:

1. an independent contractor is a party to a services contract and makes an application to the FWC; and
2. in the year the application is made, the independent contractor’s annual earnings are less than the contractor high income threshold, which is currently $175,000; and
3. the FWC is satisfied that the contract contains one or more unfair terms which would relate to workplace relations matters if the independent contractor were an employee.

Services Contract

A services contract is taken to mean a contract for services that relates to the performance of work by an independent contractor.

The services contract must have a constitutional connection.

This means that either:–

• at least one party to the contract is:–
  • a constitutional corporation; or
  • the Commonwealth or a Commonwealth authority; or
  • a body corporate incorporated in a Territory in Australia; or
• one or more of the following subparagraphs is satisfied:–
  • the work concerned is wholly or principally to be performed in a Territory in Australia;
  • the contract was entered into in a Territory in Australia;
  • at least one party to the contract is a natural person who is resident in, or a body corporate that has its principal place of business in, a Territory in Australia;
  • the work concerned is done in the course of constitutional trade or commerce.

Unfair Terms

In deciding whether a contract term is deemed to be unfair, the FWC can consider:–

• the relative bargaining power of the parties;
• whether the services contract as a whole displays a significant imbalance between the rights and obligations of the parties;
• whether the contract term under consideration is reasonably necessary to protect the legitimate interests of a party to the contract;
• whether the contract term under consideration imposes a harsh, unjust or unreasonable requirement on a party to the contract;
• whether the services contract as a whole provides for a total remuneration for performing work that is:–
  • less than regulated workers performing the same or similar work would receive under a minimum standards order or minimum standards guidelines; or
  • less than employees performing the same or similar work would receive;
• any other matter the FWC considers relevant.

Workplace Relations Matters

It is important to note that the FWC can only change unfair terms that would relate to workplace relations matters.

Workplace relations matters include, but are not limited to:–

• remuneration, allowances or other amounts payable to employees;
• leave entitlements of employees;
• hours of work of employees;
• enforcing or terminating contracts of employment;
• making, enforcing or terminating agreements (not being contracts of employment) determining terms and conditions of employment;
• disputes between employees and employers, or the resolution of such disputes; and
• industrial action by employees or employers.

Conclusion

It is important for both principals and sub–contractors who are parties to services contract to be aware of these new powers of the FWC and the matters that could give rise to an application to review unfair contract terms being made.

We offer and provide a full range of expert services to assist you with these and other issues that arise in the area of employment law.  Do not hesitate to reach out to our team of experienced professionals who can advise and assist you.